So you’ve got a great idea for a business, one that really gets your creative juices flowing. There are plans to make, goals to establish, and a business to launch. Unfortunately, starting a business costs money – often more money than you may have. This causes a conundrum. Do you borrow the money you need to start your business or continue to save money until you have enough?
There are of course pros and cons to both decisions. Let’s take a look at both to help you make the best decision for your financial future.
Pros of Borrowing Money to Start a Business
- Get started right away – One of the biggest, and most tempting, benefits of borrowing money is that you can start your business right now, while you have momentum and enthusiasm.
- Tax write off – In most cases, but not all (please check with your accountant), you can deduct the interest you pay on a business loan.
- Helpful feedback – Depending on who you’re borrowing from, you may receive feedback on your business plan or idea. This can be invaluable. Investors, banks, or personal lenders may be able to point out potential flaws in your plan. You can then fix them before you launch.
There are many ways to borrow money to start your business. You can borrow from a bank, from friends and family, or you can borrow from a credit card. Each lender comes with its own set of pros and cons, so weigh the decision carefully.
Cons of Borrowing Money to Start a Business
- Interest – The biggest downside to borrowing money is the interest you have to pay back. Sure, you can deduct it as an expense but this is still money that you won’t have in your pocket. And it affects your personal revenue and profits. Paying interest means that it can conceivably take you longer to become profitable.
- Stress – Owing money to anyone can be stressful. And it can be a downer when you’re so excited about your business to have debt hanging over your head. Fluctuating interest rates and the application process can be stressful as well. And if you borrow money from friends or family, then the stress of owing money to a loved one can be overwhelming.
On your own or with financial help, the decision to borrow money to start your business is a big one. Weigh the pros and cons carefully. There may be a way to start your business with less capital than you think.